BPER Banca SpA (BPE) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome and thank you for joining the conference call on the BPER Banca Group's consolidated full year results for 2021. [Operator Instructions] At this time, I would like to turn the conference over to Piero Montani, CEO of the BPER Banca Group. Please go ahead, sir.

Good morning, everybody, and thank you, first of all, for being here and having connected. Yesterday our press release was issued so the results that we are about to comment, maybe you have already seen them, but we're just going through them again, and then we'll leave room for questions. 2021 was a particularly favorable year for the bank. It was a significant year for a number of remarkable results that occurred and have changed the geography and the structure of the bank itself. To BPER, this was important because the bank achieved remarkable results in several respects. The year ended with a profit of EUR 525 million with steadily growing revenues, driven among other factors by the excellent commercial performance. Net of non-recurring items, profit before tax amounts to approximately EUR 580 million. Net operating income increased to EUR 3.4 billion, with net commission strongly on the rise, driven as we said before and also other occasions during the quarterly results and the 9 months results, and that commissions were driven primarily by asset management and bancassurance and the traditional banking, in general. On the cost side, the year was characterized by several non-recurring items in connection with the expansion of the group's scale. In the fourth quarter of the year, we had already announced that we also took the cost of the workforce optimization effort for EUR 210 million, and we also set up a number of other cost rationalization actions that will increase our operational efficiency. The cost for the integration of the branches that we acquired as we can confirm what we said during our previous meetings are EUR 108 million and the cost-to-income is now 62.1%, excluding the extraordinary transactions and effort. Volumes were up significantly, partly on the back of the stronger competitive position, following the successful integration of 620 branches from UBI in the first part of the year, which was completed successfully and rapidly. So we can say that technically speaking, the transaction had already been completed by the end of September. Just some tail of the process have to be processed and it was at the end -- by the end of the year. So by the end of the year, we can say that the integration occurred and was completed successfully and rapidly. Successfully -- by successfully, I mean that the branches are now perfectly operating and I would say that it was successful also in terms of personnel management because I cannot say that, but I'm sure the colleagues will prove it that the integration was successful. The market share gain now it has gone from 3% to 4.38% with a good stronger footprint in the most productive and dynamic areas of the country, Brescia, Bergamo, Varese in the North of Italy and Milan, and other provinces are and features are important because they contribute to the volumes and strongly increase our presence in the North of Italy, which is now at 60%. Also in terms of number of customers, as I said before, but I'm -- we are certain that the transaction enabled us to increase our customer base by over 50% from 2.7 million customers that BPER had before the integration to 4.2 million. In terms of loans, the trend was particularly significant. And I'm saying this because of the results we have seen, but also because, in June and September, we had announced that some lending operations were in the pipeline and we would have increased loans and in fact, we did. There was a stronger acceleration in lending by over 60% or almost 60% at the end of the year. Indirect funding, which is EUR 166 billion. Some people might have questions about that, but in terms of indirect funding, we can say that in the future, it will have a significant important -- an important relevance and it is important to us. With the indirect funding reaching EUR 166 billion, driven by growth in asset management and life bancassurance policies, with net inflows rising to EUR 2.1 billion, almost twice the amount we had last year that if I recollect properly, it was EUR 1 billion or thereabout. The trend was likewise positive and in terms of coverage and the coverage we have seen that in the previous years, the NPE coverage was increased to 60.4%, which is 5% more than the third quarter when we had 55.3% and in particular, I would underline the coverage of balance 61.8%, which means 8.8 percentage points more than we had last -- in the last quarter, and the same applies to UTPs have increased by 2 percentage points. In terms of capital and liquidity, the bank's capital strength is confirmed with fully phased CET1 ratio of 13.5%, broadly in excess of 8.29% to be precise, that is the new SREP requirement. Going into the details of the next slide. As far as direct funding is concerned, as I said, we have for the first time exceeded EUR 100 billion with 90% of direct funding being accounted for by sight deposits at the marginal cost, we had said that in the previous presentation. In particular, direct funding from customers totaled EUR 96.2 billion, up 2.4% on the back of the increase in current accounts and deposits. Institutional funding amounted to EUR 5.2 billion, up from EUR 4 billion in the previous quarter as a result of an increase in repurchase agreements to take advantage of low interest rates. As part of institutional funding or actually, the increase is almost 40%. Well, as part of institutional funding again, I would remind you that recently EUR 600 million worth of Tier 2 bonds were issued in the last month with a view to optimizing both the capital structure and the cost of funding and in fact, this is -- the amount, EUR 600 million. As far as indirect funding is concerned, it rose to EUR 166.3 billion and it's on an uptrend compared to last quarter, driven principally by asset management and bancassurance, which is the light motive that drives all of the revenues and we will see that in most of the components that I will mention throughout the presentation. But it's all with the underlying motive because the asset management and bancassurance were the pillar that enabled us to also increase the share of net fees and commissions to over 50% on net interest income. So, that, of course, it also changes the trend the bank had last year. It is important to highlight the increase of net funding flows in asset management and life insurance policies, which was driven by the excellent commercial performance and now they've settled at EUR 2.1 million, almost twice the amount of last year, which is very important because it is exactly at that time of the year that the bank was involved in the UBI acquisition. I know I'm repeating this, but it's very important for us to say that the UBI transactional was relevant, important, and not only did we onboard volumes, but also 5,000 people were on-boarded through the acquisition. So it was an impact, and at that time, we may have expected a less positive impact and instead, it was very positive. And I would like to remind you once again that through the UBI network actually, the run rate -- the churn rate, I'm sorry, the churn rate has stabilized at about 4%, which is very close to the churn rate of the traditional network. And I would like to say that from a personnel standpoint, the acquisition was very positive. The slowdown in net funding flows in the fourth quarter is obviously a normal factor considering the significant performance that was almost exceptional registered in the previous months because of the commitment and dedication of the network to the acquisition and was also favored by the favorable market trends that favored all of the market and not just us. But as against performances, they that had already been consolidated up until the third quarter, then in the fourth quarter, the network had to work also on other actions and efforts like the expansion of loans and projections for the next year. And it's important to underline that the performance in Arca volumes were up 8.5% year-on-year and 2.6% quarter-on-quarter. As far as net loans to customers are concerned, they amounted to EUR 79.1 billion on a major uptrend quarter-on-quarter by 3.4% and in particular, as I was saying before, we thought we would have achieved 2.5% in increase and instead we broadly exceeded that, and the performing loan stock also increased by 4% in the fourth quarter. Thanks to the step-up in new loans granted, rising to EUR 3.3 billion, up 57% quarter-on-quarter. With regards to moratoria and loan payment moratoria are still active for a lower aggregate outstanding amount of EUR 0.2 billion due to the expiry of moratoria by the end of the year. It is important to underline that the default rate of expired moratoria continues to be very low at 1.75%, not far from the default rate for the overall portfolio. State guaranteed loans amounted to EUR 7.3 billion, which is an increase by 4.7% quarter-on-quarter. Let's now move on to credit quality. I said it before, it is a characterizing, distinguishing aspect, not only for us, but for other banks as well. But we worked on this very much and the gross NPE ratio was down. We said we would have the NPE ratio declined, thanks to the acquisitions and we thought we would land at 5% or slightly over that, and instead we could do better and we closed with a gross NPE ratio down from the previous quarter to 4.9% and the net NPE ratio, importantly, I mean, significantly decreased to 2.0%. I remember it was 2.6% in the previous quarter. So it's been an important decrease. The disposals that we completed during the quarter were the ones that we had already planned. And so, we have completed the plan we had and probably exceeded it a little bit. Another significant aspect is that NPL coverage was strengthened. We were saying this in the introduction, but I will reassert that the total coverage of NPEs rose to 60.4% with a 5% increase quarter-on-quarter. Bad loans have a coverage of 71.8%, a 5% increase there. And the coverage of UTP loans is at 50.4%, which is a 2% increase. These are significant increases in coverage, in particular, in terms of bad loans. The coverage level we have now makes it possible to look at the future with optimism, also in terms of derisking that could be a little bit more aggressive, but we will consider that in the business plan that we're working on. It's important to underline that the performing loan coverage, which is more of a natural process is maintained at a level of 0.6% and I will reassert this later on. With reference to credit quality, you have a Slide on Stage 2 performing loans. We can see that the Stage 2 net loan stock as at the end of December amounted to EUR 7.9 billion, down from EUR 9.6 billion at the end of September 2021 and account for 10.2% of the Group's performing loans. It was a little bit higher before, but we must also consider the increase -- the strong increase in new loans granted, we have witnessed and so if we had to consider that on a like-for-like basis compared to the previous quarter, it would have been a little bit lower. But we have to consider that the reduction in Stage 2 loans is the result of the revised internal assessment model, which was activated also -- this revision process was activated also at the request of the control functions because we believe that in line with the IFRS 9 guidance, the new process makes it possible to more accurately capture positions showing an increase in credit rates. And it's also important to underline that as we saw before, the total coverage for performing loans of Stage 1 and Stage 2 loans remains essentially unchanged at 2.6%, which means that even though we have seen a change in the Stage 2 scope, all-in-all, the coverage remains the same as it was before. Sorry, I'll have a little bit of water before I go on, Mr. Montani is saying. And the default rate continues to be more or less on the same level as we saw -- as we have -- as we saw before. So a good level, not different from what it was last year, 0.9% lower than 1% for 2020 supported both by the government economic measures to deal with the pandemic, it's undeniable, but also by a comprehensive improvement of our credit quality and we must admit that we can see that and it's a multifaceted aspect, the bad loan recovery rate remains high at 6.7%, not far from what it was 2 years ago. In terms of the securities portfolio, the position has not changed very much compared to what we saw in the previous quarter. So the securities portfolio totals EUR 28.4 billion, up 15% from last year -- last quarter probably, consistently with the expansion of the group's scale. 96% is accounted for by bonds with an average duration, a gain of 2.4 years, as it was last -- in the last quarter. Italian government bonds amounted to EUR 8.6 billion, EUR 800 million year-on-year increase with an average duration of 3 years. We'll now focus on the income statement. As we said before, 2021 closed with a net profit for the period of EUR 525 million, net one-offs, profit before tax amounted to approximately EUR 580 million. The one-offs include the costs associated with the integration of the acquired branches for an amount of EUR 101.8 million. The cost of the workforce optimization efforts, which we planned to close by the end of the year and we did with a cost of EUR 210 million, additional LLPs for an amount of EUR 310 million, which we took in the second quarter, so they had already been recognized. Then in the last part of the year, there was depreciation of software and hardware for an amount of EUR 50.9 million, EUR 34.6 million in software and EUR 16.3 million in hardware assets depreciation. This will bring about a provisions for EUR 29 million and then write-downs on property is not used in operations, EUR 50.6 million in total with a breakdown between properties used in operations and not used in operations of [ 32, 20 ] more or less. Goodwill impairment for an amount of EUR 230.4 million was already recognized. And I would like to remind you because of the recent past -- of our recent past, the badwill originated by the acquisition of the 620 branches amounted to roughly EUR 1.1 billion, inclusive of EUR 310 million in tax recovery. Operating income rose to approximately EUR 3.4 billion, EUR 3.3 billion and something supported by the growth in core revenues. So what I mean is net interest income and net commission income on an uptrend in the fourth quarter as well by 3.1% core revenues from bancassurance and asset management is the light motive as I was saying before and also there were -- there was a pickup in fees and commissions on traditional banking, thanks to the development and growth we saw in the Corporate Banking because of the growth actions that we did and of course, in consideration of the acquisition of the UBI branches. Then operating -- net interest income, sorry, settled at EUR 1.5 billion, of which EUR 1.3 billion contributed by what we call commercial activity. So it's funding and lending with customers and I would like to reassert this because it's a very important aspect. The ratio between net interest income and net fee and commission income, so net interest income accounted for 53%, which is now -- it accounts for 47% and fees and commissions 44% last year and now 52.16%. So there has been some sort of a capsized situation. So the -- and we will try to work -- we will work on this in the future to try and consolidate the trend. Now, in this fourth quarter -- in the fourth quarter, we saw a contraction in the net interest income due primarily to a very simple reason. We pushed on loans, in particular, a lot. So particularly, on larger loans and of course, we have to do this by working with customers from 1 to 3 -- rated from 1 to 3. So good quality on the one side and then the competition from the market, the trend in the rates made it so that we could not recover that much. And so that had an impact on the net interest income. But at the end of the year, of course, there's an impact that then may reflect on -- in the following year, but it was very much concentrated in that part of the year because what we wanted was to have good loans in the pipeline, so that we could, in fact, focus on this -- in the first part of the year. And of course, there is a benefit from the commissions, the underlying commissions. And we are not only considering loans in themselves, but also with all of the other aspects that it brings about. The TLTRO in operations, including the impact of deposits held with ECB's deposit facility, contributed to the net interest income with the amount of EUR 26.9 million, an 11% increase quarter-on-quarter. Q2, a gradual reduction in excess liquidity. What was it driven by? Of course, we wanted to contain liquidity, so to say, with a twofold action. One action was aimed at converting funding into asset management and we worked a lot on that and you can see that reflected in the numbers. And also with the introduction, we may see or we have seen some fees on deposits, if those deposits were not compensated by other things that would compensate them and so you can see that there has been a reduction in the last part of the year. As far as net fee and commission income is concerned, they -- I mean net commission income rose to EUR 1.6 billion, driven once again by indirect deposits and bancassurance, whose gross was backed by a strong commercial effort because it was a good moment to push that and also by the market that was favorable. In the fourth quarter, the aggregate rose to EUR 469 million, up 7% from the previous quarter, driven in particular by the contribution once again from asset management and life insurance policies, which were up 10.2%. The uptrend in traditional banking fees continues and this goes back to loans as well. So traditional banking fees continued and were up 5.7% quarter-on-quarter, driven by the boost in lending and payment services. So once again, reconnects with lending. Trading income and dividends, so settles at EUR 196 million in 2021 as it benefited from both positive market performance and capital gains on securities disposals in Q4, the results amounting to EUR 23.6 million was particularly positive because it included EUR 13.2 million in losses on loan disposals. As far as operating costs are concerned, they amounted to approximately EUR 2.5 billion, EUR 2.487 billion, impacted primarily by non-recurring expenses associated with the integration of the business units acquired, the workforce optimization maneuver and assets depreciation hardware and software. The fourth quarter was likewise affected by multiple non-recurring items including, in particular, the workforce optimization effort whose upside will be witnessed in 2023, '24 as we said before. So it was important for us to close it this year, so that we will start -- actually we needed to close it last year because it's already the new year now. So that this year, we can start already with the optimization process and have significant important benefits in 2024 whereas this one, we will have just some marginal returns or upside. The depreciation and appreciation amount is particularly high because it includes software and hardware depreciation and also impairment losses on certain properties used in operations as I was saying before. Provisions and other items, loan loss provisions as a whole amounted to EUR 838 million versus EUR 785 million last year and includes -- and that includes EUR 310 million in additional provisions, which take account of the adoption of a very conservative approach to provisioning, we always said that despite no evidence of a significant deterioration in credit quality. In the past, we were told that our cost of credit was higher than expected and also probably, we were reporting actually higher cost of credit than our competitors. But if we had based ourselves on the evidence from our models, it's true that our cost of credit would have been and will be lower, but we wanted to be conservative and take important provisions with the objective of getting to high levels of coverage that will be important for future considerations in the business plan that we're working on. Excluding the additional LLPs, the annualized cost of credit is 67 basis points and we are confident it will decline in the future to 50 basis points, 55 basis points, but once again, because of this conservative approach that we want to keep for the future, I mean we have this 67 basis points, but we are confident that it can be much lower than that. With regard to capital, I think we have said a lot in the introduction, but I want to reassert that 13.5% is the fully phased CET1 ratio, which is broadly in excess of the 8.3%, which is the new SREP requirement that we will have to maintain for the future. So, the result is positive, particularly if we compare ourselves with our competitors. So final remarks I can make go back to what we said in the past, there has been a significantly -- significant increase in the competitive position coupled with a major improvement in the overall risk profile, a strong increase in core business profitability was observed driven by the transactions that we have made and also driven by a market that was particularly favorable both in terms of financial investments and the economic trends that favored the pickup in loans, but this was also obtained because of the dedication that our network paid to all of these. And I'm saying this both with regard to the traditional part of the Bank and the branches that have recently been acquired now belong to the family. The NPE ratios declined significantly as coverage are -- is growing and the sound capital position paves the way for an increase for the future. So these results that we have achieved are particularly important, not only because of what we have achieved, but also because in the last 6 months, we completed the acquisition of UBI on the 21st of June, if I'm not wrong, and then we continued with other transactions that were already included in the business plan that we thought we would present this year and said we were going to postpone it a little bit, but we completed the Gemini project with the results we have seen. We have started the business plan with all of the projects that are in the pipeline and that we are defining and we have also reorganized the organization chart of the bank, both in terms of governance and operations with about 100 people that have already been on-boarded from the acquisitions. And then the finance also was restructured with credit being divided from the commercial part and also the regional areas have been compacted so to say and reorganized. We have started some new structures like costing their investment --- corporate investment banking and insurance is another unit with a larger headcount involved there and higher skills, then the personnel maneuver was completed and we have reconsidered the gross compensation and revised the top management also, remuneration. We have transferred personnel from the San Carlo headquarters to this headquarters, now we are altogether, so that we can be more efficient. We have acquired some spaces in Milan from the 1st of July where we're going to put together 400 people in 1 single building and the entire delegation powers have been revised. We have restyled the functions that have an interface with customers and -- which were not only restyled, but will be restructured. We have given guidance on operations for the quarterly results in terms of lending and what is connected to lending, and we have seen the results in the last part of the year. So I think that with all of this that has been done and I've gone through it very quickly and that you may be less interested in, but I am interested in saying this that these results are the result basically of what we have done. And the results we have achieved, the way I have presented them are in fact a solid basis for our new business plan that we will present shortly because I think that it will be just presented in a few months. I hope I have not bored you too much and was not too lengthy. And I thank you for your attention and we will now take your questions.

[Operator Instructions] First question from the Italian conference is from [indiscernible].

I have two questions. One is on net interest income. If you could give us color on the sensitivity that compared to the other tiers may be a little bit lower, but it may be based on different assumptions. And then on the pressure on the spread, because I think it -- how much is it due to the increase in loans? And so if you can give us guidance for 2022. The next question is on loan loss provisions. So on the cost of credit, you had told us that on the fourth -- in the fourth quarter that there may have been some additional derisking actions. So the derisking occurred with a positive impact on the income statement, and if you can tell us more about the dynamics, so that I -- we can reconnect them with previous provisions that you have taken, if you give us -- if you can give us guidance for 2022 for a follow-up on that thought.

As far as the evolution and sensitivity of net interest income, I would say that it's 2 faceted, there was a first -- there will be, I'm sorry, a first half year that will include the TLTRO return that we may estimate at EUR 390 million, whereas the second part of the year, we no longer benefit from this input and so we may go down to EUR 380 million. This is more or less what we expect we will achieve. Then in terms of the coverage dynamics, I have spoken about an aggressive derisking, but we will evaluate that as part of the business plan. So it's a bit premature for me to give an answer, but the coverage that we have obtained, well, we'll try to maintain that with some evolution and developments, but we would like to maintain that target, then if there are some other transactions and operations, we will see what happens and we will mention that in the business plan. The cost of risk for 2022, I think I mentioned that in the presentation, but once again, based on the conservative approach that we have adopted. So once again, saying that our models would even lead us to lower level, I hypothesize the level of 50 basis points to 55 basis points as an underlying…

I couldn't understand that.

Yes, yes, yes. The underlying trend and the sensitivity, which I thought, in fact, was the first part of your question. I would say, and I forgot. I would say it's between EUR 60 million and EUR 80 million.

Next question from Christian Carrese from Intermonte.

Yes. Yes, my first question is about the evolution of loans. I have seen a strong increase in the fourth quarter. If you can break it down a little bit, so that we can understand the drivers. Were there any factors connected with the 110% bonus? We have seen some frauds connected to it in general in Italy and so can there be a risk for that? And then risk-weighted assets, in spite of the increase in loans quarter-on-quarter, I've seen the risk-weighted assets have remained flat or stable and so can you tell us why? Then my next question is about the cost of personnel, so personnel expenses. In addition to the maneuver that you mentioned, I have seen EUR 18 million in remuneration. So can you give us guidance for personnel expenses for 2022? How do you consider it to be evolving and the impact that you said was negligible, it's going to be negligible for 2022 in terms of staff exits. What type of positive benefits will it generate for 2023 and 2024? And then in terms of the bond portfolio, we have seen an increase. So can you tell us more about the input it has in terms of net interest income and the capital gains in the -- on the portfolio?

Well, as far as loan -- the loan trend, I would start with the 110% bonus. You're right, there has been fraud in this area for the renovation of buildings and we have seen that in the newspapers, but we are not much involved in that because we've got EUR 400 million committed to that, so to say. And we've got stringent control by a dedicated team that is looking at that rigorously. So we can tell you that we are very much well protected in that area. I said EUR 400 million, but it should be EUR 310 million, yes, was of loans for the 110% bonus as we call it in Italy for the renovation of buildings. Then in terms of loans evolution, this -- we wanted -- we accelerated it in the last part of the year because we wanted to start a new activity that is needed for us to grow in underlying factors and aspects. So, that's why we drove lending very much at the end of the year, but we should also remember that corporate and investment banking is a new function that is now at steady state, there should be 97 or 98 people in that unit, maybe being expanded and so, of course, this increases the momentum and we should not forget the -- that the contribution from the 620 branches from UBI also adds to this input with Brescia, Bergamo and Varese as local markets, and Brescia and Varese are among the top markets in Italy and so, of course, there's a return coming from that and we wanted to seize this opportunity fully. And then in terms of RWAs, you are probably -- actually Roberto is much more into that, and so I will give the floor to Roberto.

Hello, Christian.

And probably -- I'm sorry, Mr. Montani is saying that there may be another aspect, yes, about personnel expenses, probably, I would intervene on that again. Personnel expenses, 340 -- EUR 340 million is the cost and the effects of the redundancy plan in '23 and '24, yes, just a second, it's about EUR 100 million net, if I'm not wrong. Yes, EUR 100 million net spread over the 2 years. Yes. 1 part, 1 minor very little of that is also being taken this year. If I may add something in terms of loans you were saying that the companies are good, so investment grade and so, but actually, there are 2 functions involved. Mr. Montani says, when we speak about lending. So retail is one thing and corporate is another. So as of today, for some companies, we -- it's not true that we are paying some sort of an entry fee, but we have never been an aggressive bank. And so for us to get into some compartments where we were not very much present, we are a little bit of paying a price, so to say. So it's also quite natural that for us to be part of that the -- that there is a little price to be paid, but it's not to be compared with the last part of the year because the last part of the year also includes some other aspects. So we pushed lending market, the market was more sensitive and receptive so to say. And the rates were penalizing for all of the banks and not for us. So we cannot compare what we had in the last part of the year to what we will have in the future and we must make a distinction. But we think that we will be able to gain something in the future in terms of lending.

Christian, Mr. Ferrari is answering the questions about RWAs, and there was another question about the bond portfolio. As far as RWAs are concerned, 18 basis points were due to the fair value reserve and the profit in the last quarter, that was negative because of the one-off items that the CEO spoke about. In terms of RWAs, we had 3 types of benefits that enabled us in spite of the growth in lending to maintain the RWAs stable because we increased the state guaranteed loans where RWAs are at 0. The second contributor, the second reason was that we grew in large corporate, interfacing ourselves with investment grade customers rated between 1 and 3 where RWAs are very low. And so -- and the third issue is that we applied part of the transitional arrangements to the loans from UBI and so we applied our ratings to those loans subjecting them to the ARB model. And so this also decreased RWAs on those borrowers. The sum of 3 -- these 3 factors enabled us to maintain a stable level in RWAs.

The last part of your answer, I mean it's -- this is very much true, but it's very marginal, isn't it?

Yes, about EUR 100 million RWAs less, not that much. Then as far as the bond portfolio is concerned and the capital gains, last year, we had an average return of 41 basis points and we think that this year we will have a return going up to 47 basis points, exploiting the pickup in interest rates. As far as reserves are concerned, last year, we were in a territory of positive net reserves. We do not have important effects now because, on fair value reserves, we have a stock of portfolio that is limited with a very few BTPs and -- that are at an amortized cost. So it's difficult for me to give you an updated value now, but I think the reserves will go from largely positive territory to negative territory, but this does not lead -- I mean it will lead to positive net interest income because of the improvement in the portfolio, but it will not affect capital because that's going to be very, very, very limited.

Our next question is from Domenico Santoro from HSBC.

Yes. I need 3 clarifications because I think it's important. First of all on sensitivity in the margin that you mentioned before to be EUR 60 million to EUR 80 million, which, in my opinion, is very, very low. So I wanted to understand if the branches from UBI are included, it's very low because you've got an amount of reserves with the ECB, that is much higher than the TLTROs. And so why is that so low if it includes UBI? And so, are there any other things that prevents us from capturing the sensitivity? And then cost of personnel, so personnel expenses for 2022, EUR 340 million, EUR 350 million seems quite high. And so I wanted to understand if that amount per quarter is correct and if you can give us guidance for 2022 in terms of personnel expenses. And then the CEO was mentioning sensitivity -- capital sensitivity to the spread. And then the -- if you can give us color about Arca funds, is it true that your coverage is high and you're very close to announcing a merger, if it happens? But I wanted to understand your view for the future considering that you've got a lot of capital and higher coverage than other competitors.

Well, coming to your first question about the sensitivity to net interest income, EUR 60 million is correct. So the EUR 60 million I gave you, you're saying is quite low, but we're deriving that from models that our models produce and so we also have the feeling that it could be lower than -- it could be higher. I'm sorry. It could be higher. I'm sorry for saying the opposite that it could be higher than it will be, but this is the value we get from the models. So the cost of personnel, EUR 340 million, EUR 300 million per quarter next year is confirmed. It's true that it's going to be decreasing. So you will see a decrease over time and then the performance of Arca funds, I told you about that previously, but it should be EUR 18.5 million and for the last quarter, it was a little bit lower. Well, I will have -- I will confirm it in just a second. I'm going through the presentation where I have the data, but it's in the presentation. It was EUR 18.5 million, yes. And then there was a question about high coverage and a lot of capital. Yes. So, your question is going to be included in the business plan, that capital is high, is well known and it's okay. As far as high coverage is concerned, I said before that we would like to keep coverage at this level because this is the level that will make it possible to consider aggressive derisking plans. But this is all of a subject that will be incorporated in the business plan. So you will have to be patient just for a few months so that when we announce it, we will give more precise answers to the questions you are making, but we have to understand how things will evolve, and then we will be more precise.

What about costs, the guidance for total costs in 2022?

So, operating expenses, operating costs, yes. EUR 550 million, EUR 560 million per quarter.

And the sensitivity, Mr. Ferrari is adding, is basically nil because we've got almost all of the BTPs at amortized cost and a very, very marginal quantity at fair value. So the impact is almost none.

Mr. Domenico, Mr. Alessandro Simonazzi is answering. As far as personnel expenses are concerned, it's important to add that there are slots for the staff exits on a 6 month basis. So the guidance we've given is a yearly average, but the cost -- the personnel expenses is higher at the forefront and then it goes down and you will see the benefit over time because of the 6 month slots for the staff exits. So the average is what we said, but at the beginning of the year, of course, the cost is still rounded off and then it goes down over time.

Mr. Montani is adding, the impact is going to be very small this year or at least, it will be in the last part of the year, but we will see it instead from next year.

Andrea Vercellone is going to make the next question from BNP Exane.

About -- so, we have had questions about everything for BPER. I'm asking you something about Carige. In the light of the press release that you have issued where you speak about capital neutrality, can you tell us a little bit more about what you mean by capital neutrality? Does it mean that the transaction will have to maintain the fully-loaded core Tier 1 ratio for BPER at 13.5% stable at that level? Or does it mean anything else? And then about the non-performing loans, you told us that it may be that the new business plan will foresee new disposals or you may also not include new disposals and you will let us know. There are some banks that have an in-service -- an in-house service, I'm sorry. And you did -- so does it mean that you are satisfied with the servicer performance? So does it make sense to continue selling the non-performing loans and considering the performance of the servicer of the internal servicer you have?

Well, about Carige, I want to be cautious because these are transactions that follow a procedure. It's true, I mentioned capital neutrality, meaning that we do not want to have negative impacts on our capital in an area that is indicatively around what we have. So we said that we wanted capital neutrality, we didn't want to have any deterioration in terms of credit quality and we said that the idea was to have an increase in EPS, and so -- the earnings per share. And so this is what we said during the presentation and then confirming this but of course, I'm still in a negotiation phase and I cannot say anything more. As far as the disposals, and referring to Carige again, if you want to maintain or even improve the NPE ratio, it's true that we want to onboard, needs to be a good quality. So I don't know how we will do it. We're still in negotiations. But your last question is a little bit malignant, meaning that as far as the service -- that our servicer is doing is very positive and it's true, the recovery rates are very good and we are satisfied. So if you are underlying something or if you are implying something else, what I can say is that the coverage we have also may make some aggressive derisking efforts or actions possible, but the business plan is going to be the guidance and the business plan will go on anyway that the approach will be different depending on whether we expand or not. And so we're considering everything. I cannot tell you much because I cannot -- I do not have a crystal ball, but we will say more once we make in-depth deep dive in the business plan and once it is approved by the Board of Directors.

Next question is by -- from Andrea Lisi from Equita.

Yes. My question -- my first question is, if you can tell me, probably you did, but I may have lost it. The performance fees contributions to net fees and commission income and what you expect for the future in terms of indirect funding. And so, what is going to be the trajectory for fees for next year? And then as far as lending is concerned, do you think that the trend you have observed in the last quarters will accelerate also considering the national recovery and resilience plan?

Well, I'll start from the second question you made. As far as the trend in loans is concerned, yes, we think it will continue this year at a growth rate of 2% about -- conservatively speaking, I'm saying 2%, it may be a little bit higher and this is going to be the trend we want to pursue. As far as the performance fees are concerned, their contribution was about EUR 45 million throughout the year and EUR 12 million in the quarter.

And what do you expect about performance fees for the future?

We always expect the best and so that they will increase and this is our expectation and we will work in this direction, but we should not forget that last year was a generous year. This year, markets were quite -- I mean started quite nervously so to say and so the trend on the market may not be the same, but we are optimistic by nature. And so we think that we will be able to obtain a good result if it's not going to be identical or higher, it's going to be quite similar anyway.

Next question is from Adele Palama from UBS.

Yes. I just have a question on capital and what you expect for 2022? What impact do you expect?

Mr. Ferrari is answering. So we are not expecting any regulatory impact for 2022, then we'll not be offset by the rollout. So the first negative impacts will be from Basel IV. So from 2025, with the facing of about 70 basis points, 75 basis points.

I'm sorry. Can I make a follow-up question on the guidance of EUR 550 million, EUR 560 million per quarter in operating costs? Does this guidance only refer to 2022? And so for 2023 and 2024, we will have to expect something less because of the business plan. So, is this number of EUR 550 million, EUR 560 million per quarter, I mean, it does not include the actions in the business.

Yes, you're running too fast, you know? So first of all, we will have to make a business plan and then probably you will -- we will be able to give you guidance for the future, hoping it's going to be lower.

[Operator Instructions] Next question is a follow-up from Carrese from Intermonte.

Yes. With regard to the cost of risk, one of the weaknesses in the guidance on cost of risk was that, as against the guidance of an [indiscernible] an underlying cost of risk, there were additional provisions made in the following quarter for the derisking. And so, considering the coverage you have on bad loans, do you think that guidance you gave us will make it possible for you to go on as you expect, or will you have to make some top-ups in the future?

Well, with the coverage levels, probably my answer is going to be taken for granted for sure, it will be sufficient, but we will have to consider a lot of things, and I have said in the introduction that those coverage levels will make it -- would make it possible to take some aggressive derisking actions because we think that they are sufficient team themselves to go on with some derisking efforts. But since we're working on the business plan and we are involved in extraordinary transactions that may orient our future differently. We have to work on the business plan and we have to be aware of the scenario that awaits us.

If I can make another follow-up question on the payout, considering that you have grown a lot in the last -- in the past year, if you had to go through the acquisition of Carige, how do you consider your payout because you have a CET1 that is high?

I know what you're saying and I realize what your question is implying. Once again, the transaction, the merger and acquisition is in its transition phase. It's in progress and so there are some other things that we're working on that are important and we'll have to reason on the business plan. And the question you're making is a question that I understand is it's interesting, but we will make a -- give you an answer with the business plan. Yes, it may be May or June, probably more June than May, you're right. Yes, that's going to be more or less the time for the business plan.

[Operator Instructions] Mr. Montani, there are no more questions.

So thank you very much for the patience you had in following the presentation as usual. So do not hesitate to contact me and my colleagues as they have always been available for your questions in the past, they will be in the future for any questions you may have. Thank you for your attention. Have a good day.

This is the Chorus Call operator. The conference call is over. You may disconnect your telephones. [Statements in English on this transcript were spoken by an interpreter present on the live call.]